Good day ladies and gentlemen. Welcome to GAN Limited First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be provided at that time. I would now like to turn the call over to your host, Robert Shore. Robert, you may begin..

Thanks Morgan, and good afternoon everyone. GAN's first quarter 2023 earnings release was issued today after the market closed and is posted on the company's website at gan.com. With me today are Dermot Smurfit, President and CEO; and Brian Chang, Interim CFO.

I’d like to remind our audience today that we may make forward-looking statements on the call, which are protected under Safe Harbor afforded by the Federal Securities laws, and in each case are qualified by the forward-looking disclaimers contained in our earnings release.

Please refer to our filings with the SEC to understand how we calculate any of the metrics discussed in today’s call. With that, I’ll turn the call over to our CEO, Dermot Smurfit. Dermot, go ahead please..

Thank you, Bobby, and good afternoon, everyone. I'm happy to update the market today that our iGaming exclusivity in the U. S. for FanDuel Group has now been extended on a rolling basis following the operation of the initial exclusivity period in the first quarter.

We believe this has been an overhang of uncertainty and I'd like to thank the executives at FanDuel Group continuing to trust GAN with providing FanDuel with our mission critical B2B solution.

I'll also take the brief opportunity to highlight our B2C divisions significant value proposition with revenues of nearly $90 million last year and an all time revenue record in our largest B2C market achieved last month speaking to the underlying growth opportunity ahead of us.

The B2C division has also contributed their award winning modern international sports technology to our B2B division, which during the first quarter was deployed at scale in both retail and online channels in Massachusetts for Wynn Resorts Encore Boston Harbor property.

Wynn just reported a 20% increase and sign ups to their win rewards loyalty program year to-date attributed to their new sports book. And I believe that B2B partnership has an exciting future as we roll out together across the nation.

In the first quarter therefore, we made solid progress in executing our strategy in such a way that we are confident we will ultimately drive revenue gains and reduce our cost structure. Post quarter end, we disclosed a restructuring of our debt with Sega Sammy Holdings Inc. that puts us on a significantly stronger financial footing.

Firstly, we materially reduced our annual cash interest cost. And secondly, we eliminated potential covenant issues. Furthermore, we reduced the cost of exclusively licensing Ainsworth iGaming content by $15 million in exchange for a small equity stake in our company.

We also elected to exit our B2C division from the highly competitive Ontario, Canada market in order to deploy our marketing capital in faster rate of return markets available to in Latin America.

And as a reminder, our B2B division continues in Ontario, Canada as both the exclusive PAM and iGaming platform provided to FanDuel, which is a strong partnership executing well together since launch just one year ago. These three steps already taken in this strategic review process, evidence are clear commitment towards realizing shareholder value.

Step one, restructure our debt, Step two, reduce exclusive Ainsworth iGaming content cost and Step 3, exit B2C from Ontario.

Speaking to the first step taken, I could not be happier with the outcome of this strategic debt capital refinancing, which I'm confident will be beneficial to our shareholders, our employees and of course our B2B clients, and I'll speak a bit more on the broader strategic review process in my closing remarks.

So getting into the first quarter results, we generated revenue of $35.1 million, which was a decrease of 6% from the prior year quarter. The decline was primarily related to a decrease in our contractual revenue rates with the client in the B2B division, which correspondingly decreased our overall take rate for the B2B division.

With respect to our take rate, we do expect this trend to trend upwards in the coming quarters as we roll out GAN Sports across the United States. Our sports betting technology capability and particularly our retail sports betting technology carries a favorable economic model.

Positively, our contract with the largest B2B customer remains in place until January of 2025 and some of the rate decrease is partially offset by their market share gains in domestic iGaming.

B2C revenues in the first quarter were consistent year-over-year even when factoring in adverse foreign exchange with modest underlying growth on a local currency basis.

In the wake of the World Cup nearly 40% of new customers acquired during that soccer tournament, were retained on coolbet.com, which recently benefited from major soccer sponsorships in key Latin American markets, which appear to be performing well with an all time record in revenues and active players last month pointing towards a solid return to growth for our B2C division.

The underlying Key Performance Indicators or KPIs excluding the take rate were very strong across both of our operating segments. On the B2B side, we processed $423 million of gross operator revenue through our platform, which was an increase of over 40% from the prior year period.

B2C KPIs remained healthy post the Soccer World Cup with double digit or 12% growth in new customers, and importantly, our marketing spend ratio remains well below U.S. peers at just 21%.

Notably, this ratio is even lower for Latin American markets, which is a key focus of ours to drive profitable growth in geographies where we see better return profiles from customer acquisition marketing. Adjusted EBITDA was modestly positive as cost saving measures will set the decrease in our revenue.

The team remains focused on profitability, and as we've mentioned in prior quarters, all our new real money iGaming or sports gambling B2B clients will be launching from the new GameSTACK 2.0 version of our technology platform. While our first quarter revenue results are bit lighter than our expectations.

We're making great strides to reallocate resources to our higher return opportunities to diversify our revenue base and transition to our new technology platform that will meaningfully accelerate our scalability and improve our cost structure. As we noted last quarter, our focus simply puts on B2B GAN Sports and LATAM B2C.

On GAN Sports, we laid the groundwork for what we believe is the number one sports betting solution in the U. S. market with a marquee client roster to prove it.

In Massachusetts, our major partnership with Wynn Resorts yielded impressive 60 plus percent share of handle in the retail channel attracting major VIP sports gamblers with individual retail sports wagers placed in excess of $100,000 on popular local and national sporting events, including the Super Bowl and March Madness.

The historic regular season run by the bruins resulted in a high level of any interest, but certainly proved to impact the overall performance margins of the retail book, while the mobile operations delivered very promising results in the first week of operations and are continuing well into the second quarter.

We look forward to developing this major partnership with Wynn and rolling out nationally included in Nevada where we will be both their PAM and their sports tech provider across retail and online channels. GAN is now licensed in 18 U. S. States and we ultimately expect GAN Sports to be operational in every licensed U.S. Jurisdiction.

In Nevada, we continue to work through the licensing process. Moving to Coolbet's growth in Latin America, it's clear that our strong performance during the World Cup has allowed to grow our presence in these markets.

We saw strong KPIs this quarter with new customer growth of over 10% continued low customer acquisition costs and encouraging, but still very early initial metrics out of our recent entry into the Mexican market.

Finally, our largest LATAM market had a record April in net gaming revenue partly driven by new soccer team sponsorship, which appears to be delivery ahead of expectations in a tough and competitive climate. We will continue fine tuning market capital spend to the highest return regions throughout Latin America.

To illustrate this point, we clearly exited the B2C market from Ontario, Canada in order to shift marketing capital deployed at a 12-month rate of return to a six-month or faster rate of return in Latin American markets.

Finally, our new platformer GameSTACK 2.0, which combines the best elements of our existing platform and Coolbet's technology is progressing well.

All of our new real money B2B gambling clients will be launched on GamesSTACK 2.0, which will result in greater functionality for the operators and conservatively result in $10 million in annual cash savings.

I'll now turn the call over to our interim Chief Financial Officer, Brian Chang, to provide more color on financial and accounting items, and then I'll conclude with additional color on strategy and the strategic review process. Brian, over to you..

Thank you, Dermit, and good afternoon, everyone. Before we discuss our quarterly results, I wanted to provide some more details on our amended credit facility, as well as the amendment to our Ainsworth agreement, each of which were executed as part of the first phases of our strategic review.

We believe these changes were truly a great outcome for GAN and its stakeholders. As a result of the amendment to our credit facility, we were able to secure waivers for all potential events of default and amended certain financial covenants and we are very pleased to report that we are now fully in compliance with all of our financial covenants.

Our new interest rate is fixed at 8% compared to our prior rate that was variable based on, and so far, which was effectively 15.5% in the prior year quarter. In addition to lower fixed interest rate, our interest rate is paid in time, otherwise known as PIT [ph] interest, which allows us to defer any cash interest until the maturity of the loan.

While we will still recognize interest expense through our P&L, there will be no cash outflows until maturity. We estimate this will result in $4 million annual savings and cash interest.

Related to our agreement with Ainsworth, as Dermot noted, we reduced our future cash commitments by $15 million or $5 million on an annual basis in exchange for an equity stake in the company of 1.25 million shares. This will modestly increase our share count from 42.6 million to approximately 43.8 million.

As a result of this amendment, we recognized a $9.2 million gain in the quarter that is recorded in other income that significantly contributed to the reported net income this quarter of $1.5 million.

From a cash perspective, the amendments to our credit facility and Ainsworth agreements will lead to reduced cash outflows of approximately $9 million per year. Moving on to the quarter, B2B revenues were $8.6 million versus $10.7 in the prior year period. This is primarily attributable to a decrease in our take rate as described earlier.

For expenses, our capitalized development run rates have been adjusted, which added approximately $1.5 of expenses to our P&L, but did not impact free cash flow. We also note that FX in the quarter did not materially impact us as the majority of our foreign revenues and expenses are lined and constant currency exposure was a wash on earnings.

Lastly, we ended the quarter with $40.8 million in cash, down from $45.9 million as of year end driving primarily from changes in working capital. Our cash balance at the end of April approximated our year end balance. With that, I'll turn the call back over to Dermot..

Thank you, Brian. As we mentioned last quarter, we initiated a formal strategic review process that continues to progress at a good pace. Importantly, we've already executed three distinct initial steps year to-date and I'll provide more color on the two most important of those steps.

The amended Ainsworth exclusive IME content distribution partnership reduces our future cash commitments by $15 million and our successful refinancing transaction provides a much greater financial flexibility and approximately $4 million in reduced annual cash outflows over the next few years.

While each of these steps are immensely positive in isolation, the strategic review continues forward and we will update the market when appropriate.

As we go through the process, our collective belief remains unshaken that there is significant unrealized value in our proprietary technology offerings that encompasses omni-channel sports, PAM and leading iGaming aggregation, our patented IP and a growing profitable B2C business.

We are unable to provide forward guidance at this time given the nature of our strategic review process. And as a result, the variability of potential outcomes prevents us from providing an outlook within a reasonable range.

Although we expect to be in a position to provide guidance for the year upon the resolution of these discussions hopefully in the near future. To wrap up, I'm confident in our go forward strategy to drive revenue growth with B2B sports and B2Z growth in LATAM.

We are taking a more simplified and focused approach to how we allocate our capital and resources. We are in fact in the very early innings of the rollout of GAN Sports. And at this time next year, of course, subject to regulatory approvals we expect that GAN Sports will be operational with more key plans across the biggest U.S. gaming markets.

This past quarter, we've made strong strides to shore up our balance sheet providing financial flexibility to profitably grow our business. Finally, we are moving at a good pace on our strategic review process designed to deliver incremental value for shareholders, and we will update the market when appropriate.

And with that, we'd be happy to take your questions..

Thank you. At this time, we will conduct the question and answer session. [Operator Instructions] Your first question comes from Ryan Sigdahl of Craig Hallum Capital Group. Ryan, your line is open..

Good afternoon, guys. Want to start, so you guided for Q1 one day before quarter end on March 30th, and you missed the loan by $2 million.

So I guess curious what happened from spend till now?.

Yes. Ryan, look, I'll take that. So, we have continuing commercial discussions with some – if not all of our B2B clients on a continuing basis. We had multiple conversations where we were seeking incremental economic value from our B2B clients throughout the duration of the first quarter.

And we had some wins and we had some that continued in negotiation stage through into the second quarter. So you're right to call it out. We didn't get things closed in time..

So I guess, does that imply retrospective renegotiation? I guess it's a long quite follow when given the quarter was almost over?..

Well, I'll just give you an illustration, right? We actually signed our definitive material agreement with one of our clients on literally the last day of the quarter. So, it's very hard to predict these things and there's obviously a rush, which our clients sometimes know all about as you approach the end of the quarter.

So you have to be quite strategic about the decisions you make and timing of those decisions..

Got you.

As it relates to that largest B2B customer, what was the new rate? How does that compare to your old rate?.

I mean, Ryan, we're not disclosing anything to do with our specific individual customer contracts. That's just a byproduct of the strategic review. And I'll -- just slightly decline to answer at this point..

I guess it – okay. It's really hard to forecast this business going forward given $3 million to $4 million in Q1 and not knowing those changes in the contract terms going forward with by far, its most important to that B2B business. So, any help, I guess, maybe I'll ask one other a different way.

Do you expect more or less revenue from that customer this year?.

Again, in the round under the strategic review process, we really can't comment at this point. I mean we're very happy with the direction of travel with our B2B and GAN Sports through the balance of this year and we see significant growth in adoption rates and demand. Now that we built GAN Sports fully deployed in the U.S.

and Massachusetts both online and retail, which is a key inflection point for customers making commitments to our business. So again, hard to be specific in the questions and I accept and understand the frustration..

That's all for me..

Your next question comes from Chad Beynon of Macquarie. Chad, your line is open..

Afternoon. Thanks for taking my question. First on Coolbet. Dermot, I believe you said that revenues were up on a constant currency basis.

Can you talk about a kind of where the business is in Mexico, the opportunity if you're still as excited as you were previously in terms of what this could mean for the business? And then secondly, can you kind of dive in a little bit further into markets where you're seeing growth understanding that you exited Ontario just trying to get a better sense of what's going on kind of deep in the Coolbet markets? Thank you..

No problem, Chad. Thanks for the question. Yes. The B2C division, as I said on the call, we entered the second quarter with great run rate, great growth, all time record NGR and activity. Very, very happy with the byproduct results of a major soccer club sponsorship activity that started unruly at the very end of the first quarter and into April.

So very positive indications of growth that in Latin America. The growth is centered around Latin America. We are still excited about Mexico. It's been perhaps a little bit slower out of the gates than we anticipated at the very beginning of this year, but the early indications are positive.

As with all new market entries, you have to be very, very patient and optimized the conversion funnel to new depositing players before you start allocating significant amounts of marketing capital.

So we're going to continue to optimize the product, but the product itself, coolbet.com has been extremely well received in all the Latin American markets that it's rolled out into, and we expect and anticipate same team will continue to achieve market penetration and market growth rates in the Mexican regulated market, which will align with our previous experiences in that particular region.

So, very excited about the B2C division and the return to growth prospects after a relatively pedestrian growth performance in 2022, which is behind our expectations. But the indicators in the current quarter and looking forward through the year are very positive..

Great. Thank you. And then on GAN Sports, can you help us just kind of think about how long it takes to get a customer up and running, really just kind of adoption rates.

The reason why I'm asking it is, when would we need to hear about new contract launches to be live ahead of NFL season, which is obviously the biggest contributor for most B2C operators.

Is there anything, any big contracts that are coming up, opportunities there? And when would we need to hear something to have contribution for 2023?.

For 2023, it's really a rollout deployment story for Wynn Resorts nationwide. We have a very large number of markets going live this summer for Wynn Resorts, which is very exciting.

We also have the – and this is very much subject to successful conclusion of the licensing and certification process in Nevada, which is seriously complex as an undertaking. The summer launch for Station Casinos.

I think that's going to be a massive and highly impactful industry-wide shift in the tectonic plates of vendor infrastructure provision in major gaming markets. So we're super excited to get that out.

The first early indicator of that was really the very positive reception by our client Wynn Resorts and a lot of other people in the industry paying attention to the rollout by GAN or GAN Sports or Wynn Resorts in Massachusetts, not just the very fast rollout of retail, but the day one successful launch of online sports for Wynn in Massachusetts on March the 10th in the first quarter.

So super positive rollout, it was weeks, not months to get the retail operation stood up, which is super exciting retail scales and deploys very, very effectively and very well in states where we are licensed.

Other states, any new states where licensing cycles are required or technical certification requirements are slightly different, which they tend to be from state-to-state, can be a multi month cycle, but we do anticipate significant new B2B clients or GAN Sports as we progress through the balance of 2023..

Thanks. And then one last housekeeping one. Brian, you mentioned that after the Ainsworth conversion, you're at 43.8 for share. The diluted number was larger than that in the press release.

Can you give us the end of the quarter or current fully diluted number with all the warrants options?.

I believe that we should be around 47 million. We have obviously the effect of options, the Ainsworth and RSUs that have invested that would make up that delta..

Okay. Thank you very much. Good luck..

Thank you, Chad..

Thank you. At this time, there are no further questions. I would now like to turn the call over to Dermot Smurfit for any closing remarks..

Thank you, operator, and thank you, of course, to everyone for joining this afternoon's call. From here, we will lean hard into GAN Sports in the U. S. and selected international markets for B2C where we are best positioned and see clearly attainable path to profitability. I remain excited about the opportunity ahead of us.

And I'm confident we have the right team and plan to execute from here. Thank you all..

This concludes today's presentation. Thank you everyone for attending..